When considering a potential investment, one of the first questions most people ask is whether or not the company is profitable. Typically, those that are generating profits stay in the game. While profits, and especially strong profits, can be a plus, it is important to dig a little deeper. Which is why we searched for high profit basic material stocks with relatively little debt. When a company has both traits, it often signifies that it is well aligned for future growth. We think you will find our list below worthy of further research.
The long term debt/equity ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
The operating profit margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the operating profit margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
Return on assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
We first looked for basic materials stocks. Next, we screened for businesses that operate with little to no long term debt (Long Term D/E Ratio<.1). From here, we looked for companies with strong profit margins (1-year operating margin>15%)(ROA [TTM]>10%). We did not screen out any market caps.
Do you think these stocks should be trading higher? Use our list along with your own analysis.
1) Tenaris SA (TS)
|Industry||Oil & Gas Equipment & Services|
|Long Term Debt/Equity Ratio||0.06|
|Operating Profit Margin||20.89%|
|Return on Assets||11.12%|
Tenaris S.A., through its subsidiaries, engages in the manufacture and sale of steel pipe products. The company produces and sells seamless and welded steel tubular products, as well as offers related services for the oil and gas industry primarily oil country tubular goods used in drilling operations and other industrial applications. It also provides welded steel pipe products primarily used in the construction of pipeline projects for the transportation of gas and fluids. In addition, the company offers casing and tubing, drill pipes, premium connections, pipe accessories, sucker rods, and coiled tubing; onshore and offshore line pipes; and welded steel pipes for electric conduits, industrial equipment, and raw materials.
Further, it is involved in the ownership and licensing of steel technology, as well as in the financial sector. The company's products are used in oil and gas, power generation, industrial and mechanical, and automotives industries, as well as in offshore and onshore applications. It operates in North America, South America, Europe, the Middle East, Africa, the Far East, and Oceania. The company is headquartered in Luxembourg. Tenaris S.A. is a subsidiary of San Faustin S.A.
2) Yongye International, Inc. (YONG)
|Long Term Debt/Equity Ratio||0.03|
|Operating Profit Margin||27.66%|
|Return on Assets||20.67%|
Yongye International, Inc. engages in the research, development, manufacture, and sale of fulvic acid based crop and animal nutrient products for the agriculture and stock farming industry in the People's Republic of China. It provides liquid crop nutrient products that consist of fulvic acid compound base and nutrients for the health of crops; and powder animal nutrient products, which include fulvic acid compound base and additional nutrients, and Chinese herbs that reduce inflammation for dairy cows. The company markets its products under the Shengmingsu trade name through a network of county-level distributors and independently owned branded retailers. Yongye International, Inc. is based in Beijing, the People's Republic of China.
3) Randgold Resources Limited (GOLD)
|Long Term Debt/Equity Ratio||0.00|
|Operating Profit Margin||46.18%|
|Return on Assets||20.34%|
Randgold Resources Limited, together with its subsidiaries, engages in exploring, developing, and operating gold mines in west and east Africa. It also engages in diamond drilling activities. The company holds a 40% interest in Morila mine and an 80% interest in Loulo mine, as well as owns an 81% interest in Tongon project in northern Cote d'Ivoire. Randgold Resources Limited was founded in 1995 and is based in St Helier, Channel Islands.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on August 22, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.